Once a trader has mastered the basic price analysis methods and has worked with a real account for a while, it’s time to delve into trading psychology. If you don’t cater for its nuances, you are not likely to get positive results consistently.
Many traders are familiar with the complexities and the most common psychological mistakes made in trading. We have also published several articles on this topic because it is important. In this article, we’ll discuss various approaches to psychological trading, which don’t conform to the norms generally discussed. We hope that once you’ve read this article, your view of various aspects of trading will have changed.
1. Working against Yourself
This does not mean you have to trade outdoors in heavy rain or while standing on your head. We recommend that you select a trading style that is totally contrary to your normal behavior patterns.
If you are for example a calm person who is not destabilized in real life, you may think your character is perfectly suited for trading, while in fact, it isn’t. There is really no specific type of personality or character which is best for trading. All traders are aggravated regularly by strategy signals or price bounces. Even the most stable mind may be shattered or can even be destroyed.
This is why you shouldn’t necessarily find a comfort zone where you feel a strategy or trading style best matches your character. Work in in a field that seems more suited to someone else, while keeping the risks in mind.
If you are by nature an impulsive person who has difficulty staying at rest in normal life, choose a relaxed trading style where you do a small number of transactions every day. One the other hand, if you are as calm as a Buddhist monk, try trading very actively and open many deals every day. The psychology of trading can be described as the art of deceiving yourself.
2. Your Vision Is a Tool
About 80% of all information sent to your brain comes from your eyes. Your mood will automatically improve if you see something that is pleasing. That is one of the reasons why funny cat videos are so popular.
We often have to use that type of visual stimulus when we don’t receive enough positive information. That is however not the only role visual stimulation plays. To avoid psychological distractions resulting from visual fatigue, a person’s eyes constantly need a “change of scenery.” You deal with a massive amount of screen information while trading. Straining your eyes constantly will have a negative effects on your trades and you can easily miss the ideal moment to open or close a trade.
Our advice is to keep your eyesight toned by changing the theme of your trading platform from dark to light, or vice versa. It is also a good idea to experiment with the contrast and brightness of your monitor. Apart from the positive effect this will have on your eyes, it will also wake up your brain, which will get tired of the monotony of the charts. It is also highly recommended to watch the videos about cats mentioned above.
3. Love Every Third Bad Transaction
If you want to stay focused after 3, 4 or even more horrible transactions, learn how you can find something good about them. This will help you quickly forget about your losses. As it is very difficult to find the positive in transactions that caused real losses, we suggest you try the following with every third bad transaction. Describe the transaction using the following guideline:
- What will you do next? Possibilities include changing the asset or the strategy, continue trading, or stop until tomorrow.
- If you ignore the fact that this was a loss, would you do the transaction again?
- Did you open the transaction because your strategy gave a true signal, or was it just your imagination?
Evaluate your answers and come to a conclusion. Now write a statement starting with the words: “The reason I love this transaction is because …”, and end it with something like “it was done properly, and the situation will level off eventually,” or “it shows me I should only trade using my strategy’s signals”.
Don’t underestimate the importance of psychology in trading. Try to find individual and new psychological trading approaches constantly. As people are so very different, there is not a single recipe for success. Trading is not only about following recommendations, but it is also a search for what works best for you.